Investing

Inflation Could Be About To Rip Higher Again, And Food Will be Even More Expensive

Austin Smith

Published: November 20, 2024 9:48 am

Key Points:

• Jerome Powell has indicated caution despite talks of rate reduction, pointing out that it would be unusual to decrease rates more amid a strong bull market.
• Drops in oil and gasoline prices could distort CPI data; so, a real picture of inflation trends depends on an analysis of certain components.
• Also: Are you ahead, or behind on retirement? Take this quiz to see for yourself. (sponsored)

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Transcript:

[00:00:00] Doug: So we have a lot going on at the Fed, got a new president coming in who thinks he can replace the head of the Fed. That could be, that could go to the federal court system. I mean, that’s the kind of thing that ends up in federal court, a decision like that. Um, I want to tell you something. If the president can pull the chairman anytime or put in a new one, anytime Wall Street is going to go crazy.

[00:00:32] Doug: And by crazy, I mean down. They want to know that you’ve got a bunch of eggheads sitting around a huge table at these meetings. With massive amounts of data, making independent, truly independent decisions based on information and not on short term political issues. So I am very worried that if you see the new president try to yank the fed chairman, that the market will go nuts.

[00:01:06] Lee: Yeah. And Powell in his most recent, November meeting, he kind of came out, kind of with a big pushback and he’s not going to get me out and all this stuff and Donald Trump’s a smart enough guy, he’s not going to eject, but you know, he probably will sit down with him and say, look, we’ve got some serious problems.

[00:01:30] Lee: and I think there’s a good chance. Because the market has stayed so strong and all this, they, if they do another 25 basis point cut in December, that’s it. There won’t be anything. It may be till the end of next year because there’s no, I’ve never, I’ve been in this business a long time and I’ve never seen them lowering rates into a raging bull market.

[00:01:53] Lee: Never.

[00:01:54] Doug: Well, not only that, but the, the CPI for October was inflation was a little bit more little higher. But if you go in and look at the components, if the price of oil and gasoline had not dropped between 10 and 20%, depending on which component it was, yeah, you could have had about, you could add over a 3 percent increase in the CPI in October compared to last year.

[00:02:25] Doug: To me, the CPI is a little bit of a head fake right now. unless you’re willing to back out the, there’s a fuel oil component and there’s a, all gasoline component. So all of you go to the fed release and actually take a look at the components, because to me, if you want to know anything about inflation, don’t read the wall street journal, where it says, it was up or down 3. 4, just go look at the components in the press release. And see for yourself, which of those things do you think is moving up or down in a way that where the future, it could reverse itself.

[00:03:07] Lee: Yeah. And most honest economists, I have a good friend that worked at the Dallas fed for a long time and she’s on television a lot and we have some private conversations and.

[00:03:18] Lee: Yeah. And she, she told me she said the government numbers are totally crap. They’re all padded to look good constantly. they can’t make them look good when inflation’s 9%, but she told me she was there a long time. And she wasn’t the fed governor in Dallas, but she was number two, and she said that she’s very concerned.

[00:03:42] Lee: She thinks that we’re in a very desperate situation now, and the numbers aren’t truly a reflection of the economy now. So I think Paul is smart. He’s a smart guy, and he sees the writing on the wall as well. That’s why he kind of pushed back. recently said, well, those rate cuts may not be as, as plentiful as that you were pricing into the market.

[00:04:03] Doug: No. Yeah. I mean, I’m also going to give you a little crystal ball here. The thing that worries me is food and it worries me for several reasons, but the number one reason is the weather. And I’ll give you, I mean, drought hurricanes, all the orange fields in Florida were flattened and, still dry in California and there are places you can’t anything out there at all.

[00:04:31] Doug: But to me, the short term problem is this. The drought in the northeast is causing the Ohio River to drop substantially.

[00:04:41] Lee: Really?

[00:04:41] Doug: And where does the Mississippi River get most of its water at, in that part of the United States? It

[00:04:48] Lee: gets a fair amount from there, right?

[00:04:50] Doug: So guess what? The barges that carry the food from the northern tier states towards the southern tier state, some of those barges cannot navigate the river at the level it is right now.

[00:05:03] Doug: So there’s a hidden People don’t hear about this much or they don’t talk about it much, but if the Mississippi gets dry enough so that barges cannot, navigate easily, you will see food inflation and the CPI, forget the CPI, food inflation is bad for the economy, whether it’s in the CPI or not.

[00:05:26] Doug: So I’m, warning people. to look for inflation and agricultural goods simply because of the effects of the drought and not direct effects. I’m talking about things it does to reservoirs and now rivers.